Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms

Koji Sakai, 功治 坂井, コウジ サカイ, Iichiro Uesugi, 威一郎 植杉, イイチロウ ウエスギ, Tsutomu Watanabe and 努 渡辺

No 354, PIE/CIS Discussion Paper from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: This paper investigates how a firm's borrowing cost evolves as it ages. Using a new data set of more than 200,000 bank-dependent small firms for 1997-2002, we find the following. First, the distribution of borrowing costs tends to become less skewed to the right over time, which can be partially attributed to "selection" (i.e., exits of defaulting firms reduce the total borrowing costs), but is mainly explained by "adaptation" (i.e., surviving firms' borrowing costs decline as they age). Second, the selection process is natural in that firms with lower quality are separated, charged higher borrowing costs, and eventually forced to exit, which contrasts with the results of previous studies on Japan's credit misallocations, such as Peek and Rosengren (2005). Third, in the adaptation process, we find an age dependence of firms' borrowing costs even if we control for firm size.

Keywords: firm age; borrowing cost; selection; credit allocation; reputation (search for similar items in EconPapers)
JEL-codes: D82 D83 E43 G21 G30 L25 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-03
Note: First Draft: September 6, 2005; This Version: February 13, 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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https://hermes-ir.lib.hit-u.ac.jp/hermes/ir/re/15208/pie_dp354.pdf

Related works:
Journal Article: Firm age and the evolution of borrowing costs: Evidence from Japanese small firms (2010)
Working Paper: Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms (2005)
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